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Health care reform and deficits: A reality check

March 21, 2010: 10:56 PM ET

WASHINGTON (CNNMoney.com) -- The momentous vote the House took on Sunday made far-reaching changes to the American health care system.

When enacted, it will extend coverage to 32 million more people. It will protect policyholders from being bounced for pre-existing illnesses. It will expand Medicare prescription drug coverage and offer subsidies to help people pay for insurance. (Highlights of the bill.)

The expansion of coverage isn't cheap. According to a preliminary estimate by the Congressional Budget Office, the legislation would cost $940 billion over the course of a decade. Offsetting provisions would reduce deficits by $143 billion in the first 10 years and by more than $1 trillion in the following decade.

But the economic mechanics of health care reform are exceedingly complex. Does the legislation do enough to protect the budget?

CNNMoney asked a panel of fiscal experts to size up the legislation from a budget perspective.

Congress must follow through on taxes

William Gale, a senior fellow at the Brookings Institution and co-director of the nonpartisan Tax Policy Center.

The health care bill is the proverbial first step on a journey of a thousand miles. It is a step in the right direction. The bill would expand coverage and establish mechanisms that could help to reduce unnecessary medical expenditures -- via the expert commission and taxation of more generous insurance plans.

But it is a small and wobbly first step, and it will leave us a long way from either fiscal sanity or affordable, well-designed health care.

The success of the bill depends on Congress having the discipline to enact tax increases and accept expert recommendations that it has not shown in the past.

For example, the bill would not impose the tax on generous insurance policies until 2018 and then it would make the tax more restrictive over time; however, Congress has continually shied away from its commitments to be more stringent over time.

If Congress isn't disciplined, the benefits of the bill will evaporate into higher medical costs and larger deficits. And, even if Congress keeps the bill's provisions intact, the estimated $138 billion in saving over the next decade will be dwarfed by the administration's calls for $3.7 trillion in new tax cuts.

Congress should pass the bill. But health care reform and fiscal reform are processes, not events, and this is only the beginning of what promises to be a very long, hard journey.

Unfortunately, most of the legislation's fiscal risks are on the downside. Large spending programs tend to endure and when tied to health care inflation, they are certain to grow. Thus, there is little risk that coverage costs will be lower than projected.

The offsets and savings are less certain. This is primarily a political concern, not a policy one. Most ideas about how to reduce health care inflation are in the bill -- notably those that might transform the delivery system and those that limit tax-free health insurance.

Adhering to the legislation's cost controls requires politicians to commit to hard choices, but those have been weakened and delayed. This is especially true of the provision to limit tax free insurance -- which will now have a higher cap (allowing more tax-free benefits) and will not take effect until 2018.

While the Medicare Commission might politically insulate some needed changes, fiscal success will largely depend on future politicians swallowing harder than current ones.

While that is better than not having enacted any tough choices now (and credit is due there) it is not yet cause for celebration. Furthermore, even if the bill works according to plan, we are a long way from getting our health care system and our fiscal house in order.

Not enough to control costs

Howard Gleckman, a resident fellow at the Urban Institute and former senior correspondent at Business Week.

The bill doesn't do nearly enough to control long-term health costs, but it at least makes a modest start. For example, the Senate would create an independent Medicare review board to recommend ways to run the program more effectively.

I never thought I'd see the day when a Democratic president would propose constraining the growth of Medicare, but would be unanimously opposed by congressional Republicans.

In an environment where cost effectiveness research was demonized as government "death panels," it was never possible to make much progress, but something is better than nothing.